NOTE: This article may include commentary reflecting the author’s position.
The First Republic Bank collapse has surpassed the fall of Silicon Valley Bank to hold the distinction of being the second-largest bank failure in U.S. history.
It is the third mid-size bank to collapse in the past two months.
San Francisco-based First Republic Bank has been struggling since the March collapse of both Silicon Valley Bank and Signature Bank back in March.
Customers and investors were concerned about the stability of First Republic because of the high number of uninsured deposits and low-interest-rate loans held by the bank. Deposits are not insured if they are above $250,000 — a limit set by the Federal Deposit Insurance Corporation (FDIC).
Following the collapse of SVB and Signature, customers pulled out over $100 billion in deposits at First Republic. In mid-March, a group of larger banks pulled together a $30 billion “rescue” package to try to save First Republic, but it clearly wasn’t enough.
Last week, the FDIC stepped in and negotiated a deal with JPMorgan Chase to take over First Republic’s 84 branches in eight states.
This is familiar territory for JPMorgan which had taken over Washington Mutual at the height of the financial crisis in 2008. Washington Mutual is the only bank failure in U.S. history that was larger than the collapse of First Republic.
Regulators worked through late last week and this weekend to find a way forward before U.S. stock markets opened. They solicited bids for First Republic Bank’s assets and once again turned to JPMorgan Chase, the nation’s biggest bank, with a reputation as a dealmaker during times of crisis. Treasury officials also enlisted JPMorgan last month to spearhead a $30 billion funding package for First Republic.
“Our government invited us and others to step up, and we did,” said Jamie Dimon, chairman and CEO of JPMorgan Chase.
As of April 13, First Republic had approximately $229 billion in total assets and $104 billion in total deposits, the FDIC said. The FDIC estimated its deposit insurance fund would take a $13 billion hit from taking First Republic into receivership. Its rescue of Silicon Valley Bank cost the fund a record $20 billion…
…The Federal Reserve and FDIC, which regulate the banking industry along with the Office of Comptroller of the Currency, could face renewed criticism over their handling of First Republic. Both acknowledged Friday in separate reports that lax supervision had contributed to the failures of Silicon Valley Bank and Signature Bank.
Source: Associated Press
The failure of small and midsized banks could mean a restructuring of the banking system that may be detrimental to Americans.
Jamie Dimon of JPMorgan said that the bank takeover would be “beneficial” to both JPMorgan and the financial industry as a whole. Notably, he didn’t mention the average Joe looking for a small business loan.
For Dimon and JPMorgan, there may be a sense of déjà vu: Back in 2008, Dimon was the go-to banker for Washington to find private solutions for that banking crisis and JPMorgan acquired both Bear Stearns and Washington Mutual.
In a statement, JPMorgan portrayed the First Republic deal as beneficial both to the financial system and the company. As part of the agreement, the FDIC will share losses with JPMorgan on First Republic’s loans. JPMorgan expects the addition of First Republic to add $500 million to its net income per year, although it expects to incur $2 billion in costs integrating First Republic into its operations over the next 18 months.
Source: Associated Press
As large banks continue to swallow up smaller banks, this leaves less competition for customers and investors.
Sweet, Ken. “First Republic Bank seized, sold to JPMorgan Chase.” Associated Press. May 1, 2023. https://apnews.com/article/first-republic-bank-silicon-valley-fdic-5ab48702b7136d42f73ac13e0a20955d
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